Private sector quizzed on public sector IR35 plan

A new study commissioned by HM Revenue & Customs has asked the private sector about IR35 proposals meant only for the public sector.

Published yesterday, the 14-page document will reignite fears that the tax authority secretly wants to apply the proposals to limited company freelancers and their commercial engagers.

Speaking last week, a spokesman for HMRC reportedly had to head off this accusation, insisting that it has “no plans” to extend the proposals beyond the public sector.

‘Both private and public’

The denial followed a sentence by the Revenue buried in its consultation that the showpiece of the proposals, an IR35-specific ESI tool, will be “available” for the private sector to use.

Seeming to go a step further, the new study at the tax authority’s
behest was carried out among 41 employers from a range of sectors, “both
private and public.”

But it seems whoever pollsters for HMRC asked in the study, run in
November 2015 (but only published today) to gauge the impact of shifting IR35's responsibility to the paying party, the reaction was negative.

‘Passing the buck’

“Organisations felt as though HMRC was ‘passing the buck’,” reflected
the pollsters Ipsos MORI. “The potential changes were not supported by
businesses overall.”

Moreover, the employers "also said the current economic climate meant this was not a good time to make this change for either the public or private sector."

IR35 expert Kate Cottrell confirmed to FreelanceUK: “It seems to me
that this research shows that no engager whether in the public or
private sector supports the IR35 changes.”

Loss of flexibility; more red tape; inappropriate resourcing (getting
staff to do specialist freelancers’ jobs) and higher costs (from having
to payroll freelancers) were the objections.

‘Knock-on negative effects’

“Businesses saw the changes as being potentially costly, burdensome
and constraining,” the study says. “This concern was shared even by
those who rarely used PSCs [Personal Service Companies].”

There were also “knock-on negative effects” predicted by
organisations too in that the individuals set up as PSCs may be
adversely impacted as well.

“Out of caution it was said employers would be likely to put more
staff on payroll as a result of the change,” found the pollsters, in
line with an alert by staffing body APSCo.

‘Quite woolly’

“This in turn would result in them using PSCs less or put[ting] them
into the payroll more, either way undermining the PSCs’ key benefit of
flexibility.”

Elsewhere in the study, there was criticism of the current tests to determine IR35 status, with employers describing them as “ambiguous,” “open to interpretation” and “quite woolly.”

The idea of replacing those tests with one test for Supervision, Direction or Control also got the thumbs-down from the employers, who say ‘SDC’ would fail to offer “greater certainty.”

‘Clarity’

Eliminating such ambiguity is what outfits want -- “clarity around
the rules” “clarity in the implementation” of the proposals and clarity
on “what HMRC expects” to comply, they said.

This yearning for certainty seems partly due to fear, as a “common
view” was that HMRC can be strict when errors are made, as even
inadvertent mistakes attract financial penalties.

But Ms Cottrell, a former inspector for the Revenue who now runs an IR35 and employment status advisory, said that employers – and PSC owners – would have to be patient.

She told FreelanceUK: “We now have to wait on the study’s findings
and those from the consultation, but I expect freelancers will have to
hold their breath until Autumn Statement 2016 to see what happens, definitively.”